June 7, 2016
In my role as a lawyer for individual registered representatives, I am frequently presented with questions about what happens to deferred compensation when an associated person quits or is fired by a FINRA member firm. For many years, my answers were pessimistic because of a body of arbitration and court decisions that had imposed considerable barriers against obtaining disputed deferred compensation. I'm not talking about cases where the deferred compensation had clearly and unequivocally accrued and been fully earned but, rather, in circumstances where some portion of deferred comp had not vested or the employer was arguing that actions by the former employee had nullified any obligation to pay such compensation. In such heated disputes, the scales appeared heavily weighted in favor of the former employer. Following the onset of the Great Recession, however, the relative positions of the deferred compensation scales are not as favorable to former employers as in decades past. Yes, the scales still seemed tipped towards the employer but perhaps less so than we are used to seeing. In an odd version of the deferred compensation dispute, we had a recent FINRA arbitration in which a former employer alleged that he had sustained damages when his former firm had failed to enroll him it its deferred compensation program.
Case In Point
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in October 2014 and thereafter amended, Claimant Christodoulidis asserted, in part, that Respondents had conspired to injure his business and property; concocted and executed a scheme to defraud Claimant by duress; and engaged in various breaches. The causes of action are related to Claimant's assertions that Respondents had failed to disburse earned income to him and had failed to enroll him in a deferred compensation program in which he would purportedly have been vested. Claimant sought unspecified damages, fees, and costs. In the Matter of the FINRA Arbitration Between Niles Christodoulidis, Claimant, vs. Merrill Lynch, Pierce, Fenner & Smith, Incorporated, Bank of America, and Merrill Lynch & Co., Inc., Respondents (FINRA Arbitration 14-03275, May 27, 2016).
Respondent Merrill Lynch, Pierce, Fenner & Smith generally denied the allegations and asserted various affirmative defenses.
SIDE BAR: Sadly, the FINRA Arbitration Decision doesn't disclose why Claimant believed he should have been enrolled in the deferred comp plan, whether and when he complained to his employer about his non-enrollment, what defenses or explanations Respondent provided in rebuttal, what the arbitrators found to be the facts, and what the rationale the arbitrators offered for finding or rejecting this allegation.
Claimant's First Amended Statement of Claim added Bank of America and Merrill Lynch & Co., Inc. as Respondents but since those entities are not FINRA member firms and did not voluntarily submit to arbitration, the FINRA Arbitration Panel made no determination with respect to Claimant's claims against those two respondents.
FINRA Arbitration Decision
The FINRA Arbitration Panel found that :
1. Merrill Lynch, Pierce, Fenner & Smith, Incorporated is liable for and shall pay to Niles Christodoulidis the sum of $30,000.00 in compensatory damages;
2. Merrill Lynch, Pierce, Fenner & Smith, Incorporated is liable for and shall pay to Niles Christodoulidis interest on the above-stated sum at the rate of 5.25% per annum from and including October 27, 2014, through and including the date this Award is paid in full;
3. Merrill Lynch, Pierce, Fenner & Smith, Incorporated is liable for and shall pay to Niles Christodoulidis the sum of $250.00 as reimbursement for the non-refundable portion of Claimant's filing fee; and
4. Any and all relief not specifically addressed herein, including punitive damages and attorneys' fees, is denied.
Bill Singer's Comment
Yeah, I know, the Panel's pronouncements are not much help. Since Christodoulidis sought "unspecified" damages, we don't exactly know how he may have parsed his financial damages among his various causes of action. Accordingly, we have no idea whether he thought that he was owed $30 million, $3 million, $300,000, $30,000, or even $3,000 in damages. Similarly, since the arbitrators sought fit to discharge their duties by awarding $30,000 in compensatory-only damages plus interest, we have no idea as to how the Panel calculated the Award and what, if any, causes of action it rejected concerning unpaid wages versus the non-enrollment in the deferred comp plan.
At times, I pejoratively refer to FINRA as little more than a lap dog for its member firms, particularly its larger members. This arbitration only prompts me to raise that cry again. It strikes me as unconscionable that the mandated forum for the resolution of intra-industry management-labor disputes is essentially funded by management and that FINRA restricts voting on its Board and rules to management-member-firms. Having disenfranchised hundreds of thousands of registered and unregistered men and women in contradistinction to its member firms, FINRA not only has the audacity to demand that industry employees arbitrate their employment disputes at FINRA's so-called alternative dispute forum, but the deliberations of FINRA's arbitrators and the rationale of their decisions is too often a matter of hide-and-seek. No wonder there is such a desire among FINRA's larger member firms to avoid the public access afforded in state and federal courts!
In anticipation of another flood of emails and social media posts from the many apologists for FINRA's arbitration system, save your breath. I'm not changing my mind on this issue.
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